Kiran Rao was born into a royal family from Bangalore on 7 November 1973. Her paternal grandfafther was J. Rameshwar Rao, Raja of Wanaparthy.
She was raised in Kolkata where she attended Loreto House and La Martiniere Calcutta. In 1992, her parents decided to leave Kolkata so she shifted to Mumbai. She graduated with an economics major from the Sophia College for Women (Mumbai) in 1995. She attended the Social Communications Media course at the Sophia Polytechnic for two months, but then left for Delhi. She got her Masters at AJK Mass Communication Research Center at Jamia Millia Islamia, New Delhi. Her first maternal cousin is actress, Aditi Rao Hydari.
Kiran Rao started her career as an assistant director in the epic film Lagaan directed by Ashutosh Gowariker, whom she also assisted later on Swades: We, the People. Lagaan was nominated for 74th Academy Awards in the foreign language film category. Aamir Khan produced and starred in the same film. Before Lagaan she has also done minute role of supporting actress in Dil Chahta Hai'. She also worked as Second Assistant Director with Academy Award nominated director Mira Nair on the indie hit Monsoon Wedding.
She scripted and directed the film Dhobi Ghat, which was released in January 2011 under Aamir Khan Productions. She has started writing her next film which will have roots in Kolkata.